Another IRS Attempt to Rewrite Another Unworkable Part of ObamaCare?

What do you do when you wrote, passed, and defended to the death in a Supreme Court steel-cage match a law that doesn't quite work — and you no longer have the votes to make any new changes? You cross your fingers, let the Internal Revenue Service rewrite it through the rulemaking process, and hope that the words "IRS rulemaking process" cause eyes to glaze over before too many people start to care. 

That's what happened with the rule the IRS wrote governing subsidies for federally run exchanges. The plain language of the law states that the subsidies and tax credits for private insurance shall be available only in state run exchanges. In the only discussion of that provision in the Congressional record, Democratic Senator Max Baucus noted clearly that the subsidy conditions were designed to encourage states to set up their own exchanges. But despite the clear language of the law, and despite the only clear indication of the intention behind the provision, the IRS wrote a rule allowing subsidies in federally run exchanges anyway. 

Michael Cannon of the Cato Institute and Jonathan Adler of Case Western Reserve University have argued that this makes the IRS rule illegal. I suspect they are right. Cannon and Adler have jointly authored a long and quite convincing rebuttal to defenders of the IRS rule over at the journal Health Affairs. If they are right, it could be a fatal blow to the law. It now looks as if about half of U.S. states will not set up their own exchanges, leaving the federal government to step in. As The New York Times noted over the weekend, those preparations are being undertaken largely in secret, perhaps because of the many administrative hurdles to creating the federal exchanges, including the problem that the law provides no substantial funding to do so.  If the IRS rule is judged illegal, that will further complicate the federal exchange implementation process, perhaps to the point of permanent delay. As Rep. Scott DesJarlais (R-Tennessee) noted at a Congressional hearing on the IRS provision last week, the debate over the legality of the rule is "about whether ObamaCare can continue to exist."

Nor is this the only instance in which it appears that the IRS has stepped in to attempt to rewrite a potentially unworkable part of ObamaCare. As Robert Book of The Heritage Foundation explains at Forbes, the IRS has also attempted to adjust a provision in the law surrounding the employer mandate:

The most well-known part of the employer mandate requires employers to provide “qualified coverage” or pay a penalty of $2,000 per full-time employee (after the first 30, if they have at least 50). Less widely known is a special penalty that applies only to companies that do offer coverage: a $3,000 penalty for each employee who qualifies for, and accepts, a federal premium subsidy for coverage purchased through the state-based exchanges. An employee is eligible for such a subsidy, and can thus trigger the penalty, if the employee’s share of the health insurance premium is “unaffordable” – which is defined as more than 9.5% of the employee’s familyincome, if the employee’s family income is also between 138% and 400% of the federal poverty level (FPL). The intent appears to be to discourage employers from “dumping” their lower-income employees onto the taxpayers by setting high employee premium share – although it might just as well discourage employers from hiring people from low-income families.

When informed of this provision, employers naturally ask, “How are we supposed to know our employee’s family income?” Employers know what they pay, but they normally don’t know the employee’s income from other sources, or the income of the employee’s other family members. The answer based on the legislative language is basically, “You aren’t supposed to know – the IRS will tell you when they figure out your penalty.” (The law sets up a complex system of reporting and information sharing between employers, insurers, state exchanges, the Department of Health and Human Services, and the IRS, that will allow the IRS to determine which employers owe this penalty for which employees.)

Of course, without that information at the time they set premiums, it is difficult for employers to do what the law apparently wants them to do, which is to set premiums low enough to keep employees ineligible for subsidies.

The IRS responded to this eminently reasonable concern by proposing an “affordability safe harbor” that employers can use to avoid the penalty based on information they actually know. Employers would not be assessed the penalty if they offer coverage to their employers and dependents, and if, in the language of the Federal Register, “the employee portion of the self-only premium … does not exceed 9.5 percent of the employee’s current W–2 wages from the employer,” which the employer knows.

This certainly sounds like a much more practical requirement. Unfortunately, it’s not what the law says, and executive branch agencies like the IRS aren’t supposed to issue regulations that contradict laws passed by Congress.

Democrats passed the bill so that we could all find out what was in it. Now it appears that Democrats don't quite like what was in the bill, and are hoping the IRS can save them from their own unworkable legislation. 

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  • Matrix||

    And the presidon't says he likes small businesses. Best way to destroy small businesses is Obama(doesn't)care.

  • Auric Demonocles||

    If you've got a signature legislative achievement, you didn't write that. Somebody else made that happen.

  • Tim||

    "But a few days later Muriel, reading over the Seven Commandments to herself, noticed that there was yet another of them which the animals had remembered wrong. They had thought the Fifth Commandment was "No animal shall drink alcohol," but there were two words that they had forgotten. Actually the Commandment read: "No animal shall drink alcohol TO EXCESS."

  • Whiterun Guard||

    This article is about Obama, not Romney.

    No one cares about a quote from the Book of Mormon.

  • BigT||

    Two legs bad, four legs good.

  • Lord Humungus||

    Why who needs those pesky congress-critters when we can have unaccountable agencies just write laws for us?

  • Auric Demonocles||

    We've even got the Supreme Court doing it!

  • Whiterun Guard||

    You can never have too many!

  • some guy||

    Anything to protect the power of the State.

  • Loki||

    executive branch agencies like the IRS aren’t supposed to issue regulations that contradict laws passed by Congress.

    Like that's gonna stop them. What a clusterfuck.

  • The Late P Brooks||

    An employee is eligible for such a subsidy, and can thus trigger the penalty, if the employee’s share of the health insurance premium is “unaffordable” – which is defined as more than 9.5% of the employee’s familyincome, if the employee’s family income is also between 138% and 400% of the federal poverty level (FPL).

    Mortimer Quincy Goatfuck- Who comes up with this shit?

  • Ptah-Hotep||

    Mortimer Quincy Goatfuck- Who comes up with this shit?

    Government lawyers trying to figure out what the hell a monstrosity of a bill actually says and is trying to do.

  • Insert Clever Name Here||

    With all due respect, this wasn't just generic "government lawyers". This was written by Democrats top to bottom.

    You may have 100 other things to complain about the Republicans, but this one is limited to the Democrat side of the aisle.

  • NL_||

    The IRS is pretty well accustomed to filling in the gaps in the Code with the Regs. They typically engage in all sorts of behavior that's essentially legislative, until Congress or the courts change it later. Not sure if Republicans want to wade into this fragile ecosystem, especially since in general giving the Service latitude to make the Code more congenial serves both taxpayers and tax administrators. Taxpayers want a clearer and lighter Code; tax administrators want smooth compliance with minimal need for oversight.

    The politics are also weird, because the resulting policy means Republicans will argue for a business tax hike and Democrats will argue for a business tax cut.

  • BigT||

    Taxpayers want a clearer and lighter Code

    Except said taxpayers all want their favorite tax breaks.

    Solution: Flat tax!

  • The Late P Brooks||

    in general giving the Service latitude to make the Code more congenial serves both taxpayers and tax administrators.

    Let us know when any of that is actually happening.

  • Adam330||

    Well this regulation is a case in point actually. The law strictly applied is really damned stupid. The IRS rule is just stupid, but still better than the statute.

  • alex griggs||

    If you have the time, read that Michael Cannon and Jonathan Adler takedown of in Health Affairs linked in the post. Very good, very devastating stuff.

  • Brutus||

    Thanks for the heads-up. That indeed was a thorough take-down of Jost.

  • Brutus||

    Wait, are you saying that Congress didn't deliberate and debate the 2,700 pages of the Obamacare bill and the tens of thousands of moving parts it put into motion before they voted on it?

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